Batten Down FX Hatches; 'Currency War' Resumes

So, where exactly are the win-win scenarios of globalization at this point in time? With stock bourses around the world swooning like those in hapless, hopeless America, currencies are once more in the front lines of international economic conflict. As in recent months, the key combatants are the US and the Eurozone. A short time after declaring "international currency war," Brazilian Finance Minister Guido Mantega mistakenly believed that European woes put a damper on currency war:

Brazil’s Mantega said Nov. 30 that his nation’s currency was trading at a reasonable level as Europe’s worsening debt crisis brought a “temporary truce” to a global currency war. Since then, the real has gained about 10 percent against the dollar, and Mantega said last month that the so-called war was still on.

Our man Guido has thus been at the forefront of keeping the Brazilian real from markedly appreciating as the lacklustre US stimulus programmes put upward pressure especially on emerging market currencies:

Mantega’s complaint followed Fed Chairman Ben S. Bernanke’s August 2010 statement in Jackson Hole, Wyoming, that policy makers would provide more stimulus if needed. The statement, which the Fed followed up with a decision in November to buy $600 billion in Treasuries, sparked outrage from countries including Brazil that devalued currencies to counter the effects of capital flows to emerging markets.

Brazil buys dollars to limit gains in the real and has also introduced rules aimed at discouraging bets on dollar weakness. The South American nation said on Aug. 2 that it will provide $16 billion in tax breaks and toughen trade barriers to protect manufacturers hurt by a currency rally that’s fueling a surge in imports from China.

And Brazil is not alone in implementing measures to stem currency appreciation. countries in nearly every other region of the world are preparing for further US currency parasitism:

South Korea’s government is reviewing “all possibilities” on curbing capital inflows, Finance Minister Bahk Jae Wan told reporters in Seoul today, adding that he’s “closely monitoring” the situation, while declining to comment on the impact of Japan’s intervention.

The Philippines is prepared to impose controls to cap volatility in the peso after its currency rose to a three-year high this week, central bank Governor Amando Tetangco said in an e-mail late yesterday. The bank “will not go against the fundamental currency trend but will not hesitate to use tools, including imposing prudential limits on certain transactions of banks,” he said.

Turkey’s central bank said today it will sell dollars to banks when it sees it’s necessary to support foreign exchange liquidity in the domestic market. Policy makers there unexpectedly lowered their benchmark interest rate to a record low of 5.75 percent today after an emergency meeting of the monetary policy committee.

Martin Wolf has asserted that everyone else's resistance is futile since the US has no scruples whatsoever in unleashing an unending barrage of greenbacks against its rivals. In military jargon, it is profoundly unconcerned about collateral damage such as inflating food prices causing hardships in many parts of the developing world. Parasites they may be, but the question remains: who will stand up to these wastrels as they attempt to project their woes onto the rest of the world for the umpteenth time?

Certainly, I am least impressed with Chinese bellyaching about being victims of dollar debasement as they've done little to diversify their FX holdings unlike, say, Putin's Russia. In the end, you more or less get what you deserve. While America is undoubtedly sinking fast, one certainly wishes that it weren't so hellbent on taking the rest of the world down with it. If there was a third world cause for our times, this certainly is it--more so than leadership at IFIs.

Otherwise, Thomas Hobbes would realize the nature of the situation if not necessarily the particulars of combat. It's currency war of all against all as America's printing presses of currency combat begin churning once more. Bernanke's helicopter circles overhead, as if its activities have done American any good.